Assigning a Value to E-Mail Addresses

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E-mail addresses have a shelf life. Nearly a third of them go bad every year. Some email addresses are gold, others are duds, and some only behave the way you want them to at particular times of year.

What's a marketer to do?

First, you must understand the customers and prospects these addresses represent. Analyze customer spending, behavior, and the acquisition source. Though most marketers associate an email address to an individual, far fewer associate a value with that email address. A Jupiter Research report I wrote last year finds 71 percent of email marketers surveyed didn't associate a value to their email addresses.

With so few adhering to this practice, email marketers can make decisions about their lists and email practices somewhat blindly. Tactics for high-value subscribers may not work or make financial sense when applied to lower-value subscribers. List churn management can be misinterpreted. You can't fully analyze the merits of email address reactivation tactics, such as sending a postcard or making an outbound call, if you don't know whether the tactics' cost are higher than the value of the addresses you're trying to reactivate. Analysis may reveal Hotmail addresses aren't as valuable as AOL addresses, so you shouldn't use the same reactivation tactics for both.

Determine E-Mail Address Value

• Customer lifetime value. One of the more accurate but complicated ways to determine your addresses' value is to link it to your customers' lifetime value. Multiply a customer's average spend on a given transaction by the number of transactions in a year. Apply to this number a factor that represents the number of years the customer remains active and if transaction frequency increases or declines over time. Subtract servicing costs, and apply other assumptions, such as crediting customers who act as advocates to recognize this goodwill.
  
  Though this approach is useful for transaction-oriented marketers such as retailers, it's harder to apply to a publishing model or lists largely comprising new clients or prospects.
  
  
• Acquisition source. Another approach is to use email acquisition costs as an aggregate proxy for an address's value. Depending on your acquisition sources, you may want to apply a higher value to addresses acquired through partner co-registration agreements and a lower value to addresses acquired on your Web site.
  
  
• Fuzzy math. Use a combination of sources. Publishers could assign aggregate sponsorship ad revenues across the active portion (openers and clickers) of their lists. Further refine with the response and delivery differences of the domains that make up the list's active portion. Associate a lower value to domains that are more expensive to delivery to.

Apply the Valuations

Once you have values for your email addresses, apply them to your segmentation scheme and targeting and testing tactics, such as message frequency. More important, use these values to determine which reactivation tactics are warranted.

Computing email address value is a necessary function for every email marketer. The methodology you use can be simple or incredibly complex. When in doubt, start with the simple, back-of-the-envelope acquisition cost approach. If you're a retailer, leverage your existing recency, frequency, and monetary (RFM) scores.

In general, I find a company's approach is largely tied to either how conservative the company is or how much strategic value it places on email as a marketing medium. In the end, you want to understand the value of your addresses and lists. Determining this can be as complicated or as simple as it needs to be for your organization.

This exercise can help you make more efficient marketing decisions. It can even highlight to the rest of your organization just how valuable your email programs are. Good luck, and let me know how it turns out.